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Budget Statement 2019 (Continued)

Tuesday, 9 October 2018

Dáil Éireann Debate
Vol. 973 No. 2

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(Speaker Continuing)

[Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath] The European Union is stepping up its efforts to bring in a common consolidated corporate tax base and some form of digital taxation. The OECD’s base erosion and profit shifting programme is ongoing. This all means that the global corporate tax environment is changing rapidly and if just a handful of companies change their tax structures, Ireland could stand to lose billions of euro.

All this underlines the importance, from our point of view as a party, of making a start to putting some money away as a contingency, or a rainy day, fund, which we proposed in 2015 and negotiated in the confidence and supply agreement. This fund is set to be established next year and is supported by a whole range of international and domestic bodies as an important fiscal buffer. The European authorities have been very positive on this initiative. The easy part is saying we have learned the lessons from the past. The hard part is making policy changes that give effect to that in a tangible way. Some future Minister for Finance in a future Government will be glad that this initiative was taken because in the future it may well allow our country to avoid the type of tax increases and spending cuts that had to be implemented when the last crisis struck. We need to protect ourselves in the event of a fiscal shock. Against the backdrop of a balanced general Government budget, the establishment of this fund is an important reform and one we fully support.

The dependence on corporation tax receipts from multinationals is also a warning to Government of the need to place a greater focus on the thousands of small medium enterprises, SMEs, operating in the domestic economy. SMEs in Ireland employ in the region of 900,000 people and are the real backbone of our economy. Despite the strong economic rebound, life is tough for many of them. Insurance is an enormous problem for a growing number of firms, something our party has highlighted in this House on countless occasions. Other costs and emerging labour shortages make trading conditions difficult for many of them. In the budget discussions we highlighted the need to improve the taxation environment for SMEs and entrepreneurs. We are disappointed that no specific changes have been announced today on the employment and investment incentive scheme but I note the Minister's words about the finance Bill and we will engage with him on that. This scheme can provide vital early stage funding for businesses. The Minister has an Indecon report making recommendations as to how it can be improved. A good place to start would be to streamline the application and approval process and give the Revenue the resources it needs to improve turnaround times. We also shared with the Minister the feedback we have received on the share based remuneration scheme - the key employee engagement programme, KEEP. The uptake on KEEP has been weaker than expected and we welcome the changes the Minister is providing for in this budget. We also welcome the extension of the three year start-up relief for a further three years and the extension of film relief. The time limited regional uplift in the film relief is an important initiative.

Our capital gains tax, CGT, regime for businesses and enterprises needs major reform, as it is currently uncompetitive when set against the jurisdictions with which we compete. CGT is simply too high for people wanting to invest or start their own company. We had asked that consideration be given to increase the €1 million lifetime limit in the CGT entrepreneur relief but this was not possible or the Government did not decide to do so on this occasion. We, as a party, commit ourselves to improving the CGT environment for SMEs and entrepreneurs into the future. We look forward to discussing a number of these enterprise tax schemes with the Minister and others during the debate on the finance Bill.

One area on which I believe a greater focus is needed within the domestic economy is the retail sector. Irish retailers employ around 220,000 employees across 45,000 businesses. While many of them are competing effectively in the online space, many more are struggling to keep pace with the surge in online shopping. The Government needs to improve the supports available to them under the digital trading voucher scheme. Just as Enterprise Ireland assists firms developing export markets for their goods, internationally focused retailers now need help and increased supports to take on the global consumer market. If we do not step up our efforts in this area, more and more Irish businesses will fall victim and fail to keep pace with the surge in online shopping and they will be unable to compete in that space.

We acknowledge the decision to raise the 9% VAT rate in the tourism and hospitality sector to 13.5% was a difficult call for the Government to make. While the 9% rate was successful, it was always designed as a temporary crutch until the sector repaired itself. There is little doubt that many businesses, particularly in the food sector, will not be able to absorb the increase and will have no option but to pass it on to consumers. The tourism and hospitality sector has had the benefit of the reduced rate for seven years. In line with the obligations on us under the confidence and supply agreement, Fianna Fáil will be abstaining on the vote on this in the House tonight. As the 9% rate comes to an end, it is worth remembering today how it was funded in those early years following 2011. A staggering €2.5 billion was taken from the private pension savings of hundreds of thousands of workers and pensioners across the country by the last Government. This raid has had a lasting effect and has resulted in the pensions of many thousands of current pensioners and future pensioners being reduced forever and that issue needs to be borne in mind when the VAT decision is being debated.

The confidence and supply agreement provides for a supportive tax regime for the self-employed and the introduction of a PRSI scheme for them. The further increase in the earned income tax credit is to be welcomed and Fianna Fáil recommits itself to the policy of bringing this credit up to €1,650 to match the PAYE credit at the earliest opportunity. The extension of jobseekers benefit to the self-employed is also an important reform and will provide an important safety net for self-employed people whose business gets into difficulty.

Brexit is the dark cloud that is hanging over this budget. This budget and a whole lot more could unravel very quickly if Brexit goes badly wrong. On 29 March next year, just over five months from now, the UK is set to leave the European Union. Negotiations are continuing and we have little clarity on what the future relationship will be between the UK and the EU, including Ireland. Brexit remains the most serious political and economic challenge facing this island in many decades and the potential impact on people’s lives both North and South should not be underestimated. The Good Friday Agreement was signed 20 years ago. The agreement and the peace it underpins should never be taken for granted or put at risk. The majority of people in Northern Ireland, from all sides, voted to remain in the European Union. We cannot accept the return of a hard border on our island in any shape or form. The consequences would be far more profound than the obvious economic effects. We have had various predictions of the effect of a no deal Brexit and I do not need to restate them in this House today but they are clearly severe and profound. Fianna Fáil continues to believe that Northern Ireland should be given the status of a special economic zone and that there should, under no circumstances, be a hard border.

While we support the Government in negotiations, Fianna Fáil has deep concerns about the lack of readiness here in Ireland for all eventualities. In that regard, I note from today’s budget booklet that provision is being made for some 270 extra Revenue staff, presumably customs officials. We were told in July that the Government had approved the hiring of up to 1,000 customs officials and veterinary inspectors. The provision in today’s budget appears to be for 270 customs staff and I do not see a separate provision under the Department of Agriculture, Food and the Marine Vote so perhaps that can be clarified. More importantly, in a parliamentary question reply to Fianna Fáil just last week, the Minister confirmed that Revenue will require an additional 600 staff because of Brexit "based on a scenario of a transition period after March 2019 and a future trade agreement between the EU and UK." The Minister also confirmed that Revenue aims to have 200 customs officers in place by the end of March 2019. In other words, if everything goes well and there is an agreement with a transition and a future trade deal, Revenue will need 600 customs officials but by March 2019, it will have 200 and there is no certainty on the how the negotiations will stand as of March 2019. There is a clear gap and real exposure for our country in that regard. If we have a cliff edge Brexit, which none of us wants or perhaps expects to see, Ireland will not be ready despite the Government having had two years notice of the March 2019 date. In the context of well over €1 billion of trade over and back across the Irish Sea every week, this is a worrying prospect.

It is crucial that every possible support is given to businesses to prepare for Brexit. As we all know, the farming and agrifood sector is particularly exposed and needs special supports. On budget day last year, a €25 million Brexit loan scheme for the agrifood sector was announced. It never happened in practice. There is now a suggestion that it will open up in early 2019 perhaps, having been announced in October 2017. Given the industry’s vulnerability this is simply not good enough and speaks volumes at the lack of delivery on this area.

SMEs also need extra support.


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